Magazine article Workforce Management

In Workers' Heads

Magazine article Workforce Management

In Workers' Heads

Article excerpt

EMPLOYERS ARE INCREASINGLY USING PRINCIPLES OF BEHAVIORAL ECONOMICS, WHICH LOOKS AT THE PSYCHOLOGICAL SIDE OF ECONOMIC DECISIONS, TO CRAFT HEALTH BENEFITS THAT CONFORM WITH THE WAYS PEOPLE ACT. BY JEREMY SMERD

For most patients with chronic illnesses, the decision to get their medicine delivered to them by mail is a no-brainer.

Mail-order drugs generally cost less than orders filled at retail pharmacies and, in addition to convenience, pa- tients generally re- ceive 90 days' worth of medicine at a time rather than the usuai 30 days' supply.

Prescriptions, when doctors provide refills, are automatically filled and delivered so patients are less likely to run out of medicine.

Yet many employees at companies that offer mail-order pharmacy benefits never sign up for the service, even though they regularly need to take medicine, says Bob Nease, chief scientist for pharmacy benefits manager Express Scripts. As a result, he says, they are less likely to adhere to their drug regimen.

"We think part of that reason has to do with procrastination," Nease says. "Patients have problems with adherence not because they forget to take pills, but when supply runs low they don't get around to getting a refill."

Now, Express Scripts is saving patients from their own bad decisions - including the decision to do nothing.

In March, the St. Louis company announced a program to automatically enroll patients in its mail-order pharmacy service. More than two dozen employers, including Mooresville, North Carolina-based home improvement retailer Lowe's, are participating in the program, called Select Home Delivery.

Employees at these firms must now choose to opt out of the mail-order pharmacy if they want to get their drugs at a retail pharmacy instead. Since the program started, the number of Lowe's employees enrolled in mail order has doubled, the company said.

Lowe's embrace of this opt-out strategy is one of the latest examples of how employers are taking into account the way people actually behave - rather than how employers wished people acted - when designing benefit programs. These lessons from the field of behavioral economics, which looks at the psychological side of economic decisions, are helping to shape health benefits.

PREDICTABLE BEHAVIORS

Unlike classical economists, behavioral economists believe that people often act in irrational but predictable ways. This predictability, if properly understood, can help executives better design health benefits and wellness programs.

"You would think people would want to take care of their health because it's so important," says Dan Ariely, a behavioral economist at Duke University and author of Predictably Irrational. "But businesses know people need an additional push."

The Express Scripts program is one of the first to apply principles of behavioral economics to health benefit design and is based on the research into 40 1 (k) plans by economist David Laibson, the Robert I. Goldman Professor of Economics at Harvard University.

In his research, Laibson concluded what seems obvious: People procrastinate. Put another way, people have trouble making a short-term sacrifice when the payoff is not immediate. Cases in point: investing in retirement or one's long-term health.

Researchers call this tendency "hyperbolic discounting." To get around people's inclination to put off today what they can do tomorrow, Laibson wanted to make it easier for people to make the right decision. He created a so-called default option: Employees were automatically enrolled in their company's 401 (k) plan. As a result, plan participation increased to 90 percent from 40 percent, he says.

Such defaults turn a person's laziness, ostensibly a bad quality, into something that helps them. By doing nothing, they invest in their retirement.

"We use defaults when we feel people might make a bad decision," Laibson says, adding: "I think we are drastically under-using defaults in the health care domain. …

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